Ken Clarke yesterday exposed major divisions in Tory economic policies after it emerged he had supported Labour's 2.5% VAT cut.

Earlier this week the shadow business secretary denied backing the PM's move to stimulate the British economy through recession by slashing prices in the shops.

Both shadow chancellor George Osborne and Conservative leader David Cameron had opposed the temporary reduction from 17.5% to 15% in December 2008.

Asked on a Channel 4 debate with Peter Mandelson yesterday whether he agreed with the cut, Mr Clarke said: "No I didn't."

Lord Mandelson added: "You called for it before you were put into line by George Osborne."

Mr Clarke replied: "No, I did not call for it." But he was then shown an article dated November 11, 2008 in the Nottingham Evening Post, headlined "Clarke Suggests VAT Cut". It quoted the Tory MP as saying: "It would have to be temporary because public finances could only take a short-term hit. There's going to be a big drop in consumer spending. A cut may encourage people to buy something they otherwise wouldn't."

Later, in the Commons on November 26, 2008, Clarke added: "Everyone knows my preference for fiscal stimulus. If we could afford it, would be a VAT reduction."

The revelation comes after the Mirror revealed the Tories fiddled figures over welfare, education and crime. Will Straw who carried out the research for the Left Foot Forward website said: "It shows Ken Clarke is backtracking on VAT to try to hide Tory divisions."

Mr Osborne yesterday exposed the party's deep splits over the economy. On January 21 he backed Barack Obama's plans to break up banks by separating retail from risky investment banking.

But yesterday he told the Wall Street Journal: "I fully understand that modern universal banks need to offer their customers investment banking services."